Monday, February 22, 2010

When Ronald Reagan became President, one of the most dramatic and far-reaching effects of the Conservative Revolution he brought to power was the sudden and near total cessation of anti-trust enforcement. Now, a generation late, some of the damage has become so hard to ignore, it is finally coming to light. In an article just posted to the Washington Monthly website, Barry C. Lynn, director of the Markets, Enterprise, and Resiliency Initiative at the New America Foundation, and Phillip Longman, senior fellow at NAF, present the evidence that the failure to enforce anti-trust since 1981 has led to an astonishing degree of monopolization and cartelization in the American economy, from agriculture and manufacturing, to retailing.

Reagan refusal to enforce anti-trust laws was a direct result of Milton Friedman’s theories that increasing concentration would benefit the economy by giving larger firms more advantageous scales of economy they would use to better defend the innovation and efficiencies they created. (This is an old idea of laissez faire, the economic school of thought which was repudiated when the weak government structure of the Articles of Confederation was abandoned in favor of the Constitution; see Frank Bourgin, The Great Challenge: The Myth of Laissez-Faire in the Early Republic, Harper & Row, 1989. Lynn and Longman point out that Friedman was able to repackage laissez faire to make it acceptable by calling it free market instead). Lynn and Longman show that what has actually happened since 1981 is just the opposite: technological innovation has been stifled, while the economic efficiencies enforced by monopolistic corporate behemoths have mostly taken the form of cutting employment so deeply, it has effectively crippled the ability of the U.S. economy to create jobs. Hence the title of Lynn and Longman’s article: Who Broke America’s Jobs Machine? Why creeping consolidation is crushing American livelihoods.

Near the end of the article, Lynn and Longman quickly note what I consider to be one of the most difficult and entrenched economic problems we now face:

. . . we will first have to break up the intellectual monopoly that has been forged over so much political economic policymaking in Washington today. The generation of political economists who understood the theory and practice of antitrust as devised by the late New Dealers are mostly retired or dead, and the academic economists who today dominate most discussions either have little understanding of the political nature of antimonopoly law or are openly hostile.

For an article of such importance and weight, it is surprisingly short. Unfortunately, it does not include any links to some of the studies and reports that Lynn and Longman cite. A liitle googling will be in order for those who want to learn more. Fortunately, The Enterprise and Innovation Project is a new effort by the New America Foundation that has been launched to address many of the issues raised.

If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.

Many people blame the great real estate bubble of recent years. The idea here is that once a bubble pops it can destroy more real-world business activity—and jobs—than it creates as it expands. There is some truth to this. But it doesn’t explain why, even when the real estate bubble was at its most inflated, so few jobs were created compared to the tech-stock bubble of the late ’90s. Between 2000 and 2007 American businesses created only seven million jobs, before the great recession destroyed more than that. In the ’90s prior to the dot-com bust, they created more than twenty-two million jobs.